First Solar, Inc. (NASDAQ:FSLR) has a couple of key events coming up, and Goldman Sachs analysts are recommending some options trades to hedge against the risks they see with these events. They believe the company may post a miss in its earnings report tomorrow and note that the company’s analyst days have, in the past, been the source of volatility in the company’s stock.
Consensus estimates for First Solar’s earnings at risk
On average, analysts are expecting First Solar, Inc. (NASDAQ:FSLR) to report earnings of 98 cents per share on revenue of $961.5 million. Goldman Sachs analyst Brian Lee sees a 7% risk to consensus estimates for tomorrow’s earnings report because he thinks that activity on large-scale solar projects has slowed down over the last few months. He believes growth in the U.S. solar industry has shifted more towards rooftop and away from utility-scale projects.
Shares of First Solar, Inc. (NASDAQ:FSLR) have averaged a plus or minus 12% move in connection with past earnings reports.
Risk to First Solar’s analyst day also ahead
In addition to a risk to the company’s fourth quarter earnings, he also sees a risk that First Solar, Inc. (NASDAQ:FSLR) may cut in out-year megawatt targets. He expects this announcement at the company’s analyst day, which is scheduled for March 19. He said the mix is shifting toward low-end projects, which he believes will drive a 480-basis point decline in First Solar’s fourth quarter gross margins.
Shares of First Solar, Inc. (NASDAQ:FSLR) have moved, on average, plus or minus 18% over the company’s last three analyst days.
March puts for First Solar recommended
Because of these risks, Goldman Sachs is recommending that investors buy March $55 puts for First Solar, Inc. (NASDAQ:FSLR) at a price of $4.30. The firm believes that options are currently pricing in “just normal volatility” for First Solar’s earnings report and very little for the company’s analyst day. Goldman analysts say implied volatility for March is in line with average levels from previous years, which are around 61%. That’s in spite of the fat that the company’s stock has moved more on its analyst day than on earnings in the past.
Lee and his team also believe that the recent outperformance in First Solar, Inc. (NASDAQ:FSLR) shares provides an “attractive level” in terms of hedging these upcoming risks. The company’s stock has outperformed the S&P by over 8% over the last month. That coincides with a decline in the cost associated with hedging holdings. Goldman said the three-month normalized skew is just in the 40th percentile, which suggests that puts are cheap compared to calls.